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Insurers with stockholders pay out less to Florida drivers, study says

Palm Beach Post (FL)

Dec. 01--As car damage from 2017 storms in Florida and Texas threatens to set records, does it matter if your insurance company has to please stockholders and not just policyholders?

Yes and the problem is getting worse in Florida, argues Dan Karr, founder and CEO of Bedford, N.H.-based Valchoice. His firm says it aims to harness the power of big-data analytics to help insurance consumers. He contends pressure to keep investors happy by shoring up profit margins can be measured in how often companies deny, delay or pay less for claims.

"I think Florida customers are going to suffer," Karr said. "There's no doubt publicly-traded insurers give policyholders a more difficult time when they file claims."

What's the evidence? Publicly-traded insurers like Geico and Allstate paid an average of about 65 cents for claims out of every premium dollar Florida customers spent in 2016, Valchoice found in analyzing reams of data insurers submit to regulators. The company broke out Florida data at the request of The Palm Beach Post.

Mutual companies owned by their policyholders, such as Nationwide and State Farm, paid a consistently higher average, 73 cents.

And it was 82 cents for USAA, a mutual company that serves members of the military and their families.

Karr says the disparity is an especially big deal for Florida, where stockholder-owned companies have come to control 63 percent of the state's $16 billion market, one of the highest shares in the nation. Publicly-traded insurers hold just under 50 percent of the market nationally, his firm says.

An industry association whose members include both stock and mutual companies neither confirmed or disputed the data, but did push back against the notion that there's some kind of secret plan to short-change customers in order to please investors.

After all, drivers have choices in a very competitive marketplace if they feel mistreated, said Bob Passmore, assistant vice president for personal lines policy at the Property Casualty Insurers Association of America.

"There is no difference between how stock and mutual companies handle claims," Passmore said. "The home, auto, and business insurance industry is extremely competitive and companies compete aggressively in this marketplace to attract and retain customers."

He continued, "The claims experience is one of the most important aspects of customer satisfaction and in fact, stock companies are likely to be even more sensitive to negative perceptions about service. Perceptions about a company may impact the investment value of the company in the eyes of investors as well as in purchasing decisions for current or potential customers."

Individual investor-owned companies including Geico and Progressive did not respond to requests for comment for this story.

An Allstate spokeswoman referred to a 2016 statement that the company offers "a fair and caring claims experience for customers, and we work diligently to ensure the timely and accurate processing of claims."

Karr says he has a background in technology, business and mathematics, and has been working full-time at his start-up firm for about four years.

"Like most people, I was fully insured with what I thought was good health and auto insurance," Karr says on his website. "Then I was hit by a car. Everything seemed fine, until I got a letter in the mail saying I was being taken to collections for nearly $100,000 of medical bills that insurance companies weren't paying."

He continued, "After a lengthy process of recovering the money, I vowed to fix this problem. I vowed to apply my technology background to make sure no other family ever experience the same thing my family went through."

Karr acknowledges in individual cases, companies can excel or treat customers poorly regardless of ownership type. But the big-picture data suggests when it comes to paying claims -- as reflected in what is known as the "paid loss ratio" -- the gap between stockholder-owned firms and mutuals is growing wider, he says. That gap has quadrupled in Florida since 2014, according to Valchoice's analysis.

The split also shows up in complaints to regulators, the firm says. Nationwide, stockholder-owned companies generated 15 percent more complaints per premium dollar than mutuals about delayed, denied or inadequate claims payments over five years ending in 2016, Valchoice found.

The corporate structure of your insurance company might not be the first topic you'd choose to liven up a dinner party, but it boils down to a real-world concern: Whether stockholder-owned firms are less likely to come through when you need them.

After Hurricane Irma in September, John Flynn of Lake Worth said Geico initially denied his claim of scratches and body damage from storm debris, before resolving it with a payment after The Post inquired. Between that and home damage not covered by another insurer because it did not exceed his hurricane deductible, Flynn found it a trying experience: "One storm shouldn't put us in the poorhouse."

Geico offered assurances Florida customers were not facing special difficulties because Irma came so soon after massive flooding from Hurricane Harvey in Texas damaged or ruined an estimated 1 million vehicles, widely expected to be the most ever from a disaster.

"We continue to deliver prompt and fair settlement of all claims for our customers affected by the recent storms," Geico spokeswoman Christine Tasher said at the time.

Perhaps not surprisingly, mutual companies, which include firms like Amica and Auto-Owners, were generally happier to chat about the research.

"Mutual insurers exist for policyholders, that's their sole constituency," said Neil Alldredge, senior vice president of corporate affairs for the National Association of Mutual Insurance Companies. "The interests of mutuals are directly aligned with their policyholders, so profits are either used to build surplus and reserves for claims, or go back to policyholders as a dividend. There's no short-term pressures or quarterly profit forecasts for shareholders."

USAA notes its membership is open to active, retired and honorably discharged U.S. military service members and their families.

"USAA is a member-owned association, so we work to keep our operating expense ratio well below the industry average, provide best in class member service and pay what we owe in claims," said USAA spokesman Rich Johnson. "While claims costs are increasing for the entire industry, USAA still offers quality coverage at the most affordable rates possible."

Of course, there's a case to be made that investor-owned companies bring plenty of benefits to consumers too. Money from investors can give companies a powerful war chest to expand their business and fight for market share, and consumers can reap the benefits when companies compete hard for business on price and service.

Still, stockholder-owned insurers come with a built-in conflict between shareholders and policyholders, and consumers tend to lose that struggle when it comes to paying claims, as analysts like Karr see it.

The trouble is, drivers generally know next to nothing about a company's history of paying claims, let alone how its ownership is structured, when they shop for insurance.

What they do see is advertising. Shareholder capital has helped fuel an advertising arms race in which investor-owned companies are generally wrestling market share away from mutuals.

The Post reported in 2015 that insurance led the top 10 U.S. industries for the fastest growth in ad spending, churning through $6 billion a year largely to tell consumers how much they can save on car insurance by switching. Commercials for mutuals are part of that spending spree, but investor-owned companies have set the pace, led in recent years by Geico.

That's why consumers need all the information they can get to help the marketplace work most effectively, Karr said. Greater transparency is needed, he said.

"There's a clear conflict between shareholders and policyholders, no doubt about it," he said. "You step back and look and say, wow, this is really bad for consumers."